Tone from the top is an important tool in combating fraud
Some sayings in our lexicon seemingly have a shelf life. I’ve heard and read through various sources that ‘tone from the top’ is an over used saying and has possibly pass its best before date. Possibly you’re tired of hearing it? If you’re tired of hearing it, then are you also tired of hearing any saying relating to ethics, accountability, and transparency too? Until all the misconduct happening in organizations the world over comes to a screeching halt, which it won’t, then sayings like ‘tone from the top’ will continued to be drilled into our lexicon. It’s not going anywhere, nor should it.
In an interview between ethiXbase and Richard Bistrong, CEO at Front-Line Anti-Bribery LLC (here), one part stood out about ‘tone from the top’:
Tone at the top is essential. It shows leadership commitment. But I often counsel, before looking for the bribe, look for the strategy. In other words, is compliance a part of the discussion when business strategy, forecasts and incentive plans are rolled out, especially in high-risk and low-integrity regions? Are corporations looking for quick returns in frontier markets, or do they have a long-term plan for ethical and sustainable business? From my perspective, where time lines are short in high-risk markets, and incentives are indexed on individual performance, or what we call “eat what you kill” in the sales field, then we have a very dangerous disconnect. In such scenarios, forward positioned personnel and teams will ponder “what does management really want, compliance or sales, as I can’t deliver both.” When you have that zero-sum indexing of anti-bribery compliance with business success, it presents great peril to all. In such environments, compliance decisions get made ‘on the fly,’ and the unspoken organisational message of ‘win above all else’ starts to dilute that tone at the top. I understand those quarterly calls where ‘did you make your numbers’ sounds a lot louder then ‘how are you making your numbers.’ Now compliance is left with the unenviable task of potentially catching falling knives.
In many scenarios, ‘did you make your numbers’ translates to finding creative ways to make the numbers. And in many cases being creative takes precedence. Nobody understands that more than Walt Pavlo.
When it comes to fraud committed by executives and employees, three factors play a major role in enabling this to happen:
- The degree to which the preoccupation with meeting expectations permeates the organization’s climate
- The compensation and incentive plans that may encourage unacceptable, unethical, and illegal conduct
- The degree of fear and pressure associated with meeting numerical goals and targets
These three factors can force employees and their superiors together to discuss ways to manipulate the records in order to meet expectations. It doesn’t just happen over night, but rather over time, in an evolutionary process. Employees learn as they go and as they need to in order to make numbers look how upper management wants them to look – better. Like the above snippet from Richard Bistrong, the top tone is asking ‘did you make your numbers?’, not ‘how are you going to make your numbers?’
What do leaders need to do to create a truly ethical climate in their organization? Set the tone from the top of course:
- Lead with integrity, and by example. People take their cues from the top, believing their leaders are there for a reason. Employees will inevitably follow the lead of their leaders. If a leader says ‘let’s do this accounting switch now and rectify it next quarter’, then it may not look quite as bad, or unethical, to an employee. The problem is, the fix never happens and the bad behaviour continues to escalate. It was unethical the moment the conversation happened.
- State clearly (and make it convincing) what the values are for the organization. Too often leaders will ‘talk’ but they don’t ‘walk’. Or they ‘talk’ but aren’t convincing. Employees will model the dishonesty of their superiors. Leaders should let their employees know that these ethical requirements and goals are not just random words, but are the organization’s values and all employees need to live by them.
- Ensure there is a place for employees who are witnessing misconduct within an organization to be able to report that misconduct. They also need to know that there will be no retaliation and that their concerns are valued by the company. The organization should create a safe environment for employees to report misconduct if they learn of anyone who might be involved in fraudulent or unethical activities. Also, employees should be informed that what they are reporting is valued by the company and will be protected within organization.
- It’s important that the company not just be focused on short term profits. If it is and this is important, it needs to be communicated to the employees as such, and the employees should act accordingly and ethically to ensure this short term goal is met. Because short term goals may create a heightened sense of panic to get the job done in time, it’s important that ethical behaviour, particularly ethical behaviour that was difficult and a tough choice for an employee to make, is rewarded.
Dr. Steve Salbu, an organizational behaviour expert, states: his experience is that employees are good at detecting, over time, who really has character and integrity and leads with honour, and who doesn’t.
Which makes perfect sense because it’s employees who are the best detectors of fraud in an organization. So if unethical behaviour trickles down from the top, employees who witness this should be able to come forward and speak up about it.
Without a speak up culture, employees won’t report what they see.
Source: Interview: Third Party Risk Management on the Front-Line
Source: Fraud and the Tone at the Top